Tesco urged to split itself into three separate stores

26th Aug 2014 12:18

Tesco should split itself into three parts if it is to turn its fortunes around, Bruno Monteyne, an analyst at Bernstein Research, said.Monteyne believes Tesco's incumbent chief executive Dave Lewis should consider the option of breaking the struggling retailer into three separate stores, to offer better service to its customers and to enhance its chances of sustaining the challenge posed by its rivals."Splitting themselves into different channels allows them to use different strategies with different customers," said Monteyne, himself a former Tesco executive."Rip out 20% of the range, have cheaper shelving and cheaper products in the more deprived areas and give customers a better deal. In London, where people want someone behind the counter who knows the difference between a Parma ham and a serrano ham, that requires more investment."Monteyne insisted that Tesco had the potential to challenge Waitrose but only by splitting its "Finest" stores from the regular operation, while the creation of a discount chain would go some way to curb the threat posed by Aldi and Lidl."By Tesco promising to have the same prices in the most affluent areas as the poorest areas, it's basically tied its hands behind its back by committing to an uneconomical model," the analyst said."Tesco could probably be cheaper than Aldi in some areas, but national pricing would force them to do the same in Chelsea as well and Chelsea wouldn't be successful."The emergence of Lidl and Aldi has seen Tesco, Sainsbury's and Waitrose lose a sizeable portion of the market but, due to its size and mid-market position, Tesco has suffered more than its rivals and outgoing chief executive Philip Clarke was forced to resign last month.Lewis, Unilever's head of personal care products, is expected to face a tough challenge when he's officially installed in his new role in October, as Tesco shares have fallen 25% this year and the group released a profits warning in July.Tesco shares were up 0.85% to 250.10p at 10:39 on Tuesday.DC